The UK government has launched its long-awaited consultation on regulating crypto-assets and stablecoins.
The consultation, which is being led by HM Treasury, is described as representing the ‘first stage’ in the government’s consultative process on a broader regulatory approach to crypto-assets and stablecoins, which peg their value to assets such as fiat currencies or commodity prices. The government is seeking views on how the UK can ensure its regulatory framework is equipped to ‘harness the benefits of new technologies, supporting innovation and competition, while mitigating risks to consumers and stability’.
The consultation gets underway amid a recent surge in the price of the well-known cryptocurrency bitcoin but also as the UK’s Financial Conduct Authority (FCA) urges people to be cautious if investing in crypto-assets.
The FCA warned today (11 January) that ‘investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money’ and that ‘if consumers invest in these types of product, they should be prepared to lose all their money’. The watchdog says that for crypto investments, consumers are ‘unlikely’ to have access to the UK’s Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong. Since yesterday, all UK crypto-asset firms must be FCA-registered under regulations to tackle money laundering.
UK crypto market ‘growing rapidly’
The ‘UK regulatory approach to crypto-assets and stablecoins: consultation and call for evidence’ document opens with the economic secretary to the Treasury, John Glen, saying that the government plans to take an ‘agile, risk-led approach to regulation, rooted in the principle of “same risk, same regulatory outcome”.’
‘The size of the UK crypto-assets market is still relatively small, but rapidly growing,’ the 46-page publication notes. ‘The government recognises that many firms engaging in crypto-asset activities are SMEs [small- and medium-sized enterprises] and start-ups. The government wants to ensure that any approach enables responsible innovation to occur, particularly where risks are well-communicated and understood. The government also wants to ensure that their use does not threaten stability and safeguards are in place to avoid their use in illicit activities’.
‘The government is therefore considering an approach in which the use of currently unregulated tokens and associated activities primarily used for speculative investment purposes, such as Bitcoin, could initially remain outside the perimeter for conduct and prudential purposes,’ the document continues. ‘At the same time, these would be subject to more stringent regulation in relation to consumer communications via the financial promotions regime (if adopted) and AML [anti-money laundering/CTF [counter-terrorist financing] regulation. Utility tokens – those used to access a service – would also remain outside the authorisation perimeter.’
Keeping an eye on MiCA
The consultation makes reference to developments related to crypto-asset regulation beyond the UK’s shores, saying, for example, that the Treasury and UK authorities are closely monitoring developments in the European Union.
The European Commission adopted a new digital finance package, containing – for the first time – legislative proposals on crypto-assets in September last year: the proposed Markets in Crypto-Assets (‘MiCA’) regulation. At the time the Commission said the EU should put in place a comprehensive framework ‘enabling the uptake of distributed ledger technology (DLT) and crypto-assets’ in the financial sector by 2024, and that it should also ‘address the risks associated with these technologies’. Issuers of significant asset-backed crypto-assets – global stablecoins – would be subject to more stringent requirements.
The opening of the Treasury’s consultation, which will run until 21 March, comes almost 10 months after plans to do so were announced last March in chancellor Rishi Sunak’s debut Budget. Sunak said in November that government would be publishing its consultation ‘shortly’, adding that the government would also ‘shortly’ publish plans for the payments sector. In respect of payments, a Treasury-led review of the UK’s payments landscape was announced in June 2019, with a 41-page ‘call for evidence’ closing in October last year having attracted more than 60 responses.
Separately in the UK, the Financial Times reported last week that the government-backed review into the country’s fintech sector will recommend measures including special visas for tech workers and changes to the UK’s listing regime. The six-month Fintech Strategic Review was also announced in last year’s Budget and got underway in July.